Shares of SolarCity (NASDAQ: SCTY) are mildly higher mid-day Tuesday as traders turn their attention to the positive implications of the California net metering bill, signed by Governor Jerry Brown on Monday. The bill pushes out the states net metering cap and creates several favorable terms for the California solar industry.

Assembly Bill 327 mandates CPUC to create a new program in determining the net metering cap by 2017, effectively removing the 5% peak demand cap for the next 3 years, Mok explains. It also allows customers who purchase solar systems before July 2017 to sell power to utilities at favorable rates for the remainder of the solar panels' lifetime. Additionally, the bill states that the Renewable Portfolio Standard (RPS) goals are now minimum allowable levels instead of fixed targets, eliminating the 33% limit on renewable sources by 2020.

As part of the bill, utilities are allowed to start charging up to $10/month to cover the costs of supporting rooftop solar customers in 2015, according to Mok. This could eventually accelerate solar adoption, he said.

Mok believes net metering policy is net positive for the solar industry, since producers can save the grid connection or transmission costs. "According to PG&E, 35% of a typical residential electricity bill in Northern California goes to the transmission and distribution network," he notes. "Therefore, at an average rate of $0.18/kWh, $0.06/kWh goes to distribution. Because SolarCity does not incur these costs, the company has a cost advantage as a distributed power producer and the government is not regulating lease pricing of solar energy systems."

"We believe this news removes the risks of reaching net metering cap in CA, the largest rooftop solar market, and paves way for other states to follow with similar favorable rules," Mok said. "We believe a stable policy on net metering will continue to support growth in residential solar leasing and this bill is long-term positive for SCTY."

While positive, the analyst stopped short of upgrading shares. With a fair value of $40, they are maintaining a Hold rating on SCTY at this time.

For an analyst ratings summary and ratings history on SolarCity click here. For more ratings news on SolarCity click here.

Shares of SolarCity are up 2.5% intra-day to $39.44. In addition to SolarCity, shares of Real Goods Solar, Inc. (NASDAQ: RSOL) are up 3.7% on the news.